What Happened:
Shares of video conferencing platform Zoom (NASDAQ:ZM) jumped 13.5% in the pre-market session after the company reported fourth-quarter results, with its revenue narrowly outperforming Wall Street's estimates, though EPS beat by a more convincing margin. There was also an acceleration in its new large contract wins. On the other hand, its full-year revenue guidance was below expectations and suggests a slowdown in demand. Lastly, Zoom demonstrated its focus on driving shareholder returns as its Board of Directors authorized a stock repurchase program of up to $1.5 billion of its common stock. Overall, this was a mixed quarter for Zoom. However, the market reacted very positively to the news of the share buyback.
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What is the market telling us:
Zoom's shares are quite volatile and over the last year have had 4 moves greater than 5%. But moves this big are very rare even for Zoom and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock gained 9.5% on the news that the company reported a "beat and raise" quarter. First quarter results exceeded analysts' expectations for revenue, free cash flow, and adjusted operating income. Earnings per share (EPS) also beat by an impressive 17%. It was also good to see gross margin improve. Guidance was solid, with next quarter's revenue and adjusted operating profit guidance both slightly ahead. Additionally, full year revenue and adjusted operating profit guidance were both raised and came in ahead of Consensus, which was a big bright spot. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue retention rate deteriorated. Another negative is the slowdown in the Enterprise business. Overall, it was a solid quarter for Zoom Video. Following the results, MoffettNathanson analyst upgraded the stock's rating from Underperform (Sell) to Market Perform (Hold).
Zoom is down 2.4% since the beginning of the year, and at $67.61 per share it is trading 9.4% below its 52-week high of $74.59 from February 2023. Investors who bought $1,000 worth of Zoom's shares at the IPO in April 2019 would now be looking at an investment worth $1,089.
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